Mortgage Acronyms Defined APR: Annual Percentage Rate. This expresses the annual cost of borrowing as a percentage of the loan amount. It factors in not only the interest rate, but also the fees associated with the loan. Because federal law requires lenders to use a similar formula to calculate APR, consumers can use it as a method for comparing the true cost of mortgages. ARM: Adjustable rate mortgage. The interest rate on an ARM changes periodically over the life of the loan. CD: Certificate of deposit. Some adjustable rate mortgages are CD-indexed (see next entry), which means their interest rate fluctuates every six months according to the current rate offered on these investments. CODI: Certificate of Deposit Index. The CODI is the average yield on three-month CDs over the past year, as reported by the Federal Reserve. It is one of several indexes commonly used to set interest rates on adjustable rate mortgages. COFI: Cost of Funds Index. This is an average of rates paid on checking and savings accounts by a regional sample of U.S. banks. It is one of several indexes commonly used to set interest rates on adjustable rate mortgages. CRC: Credit reporting company. CRCs collect information about personal credit and prepare reports that help lenders assess the risk of granting a mortgage to a given borrower. ECOA: Equal Credit Opportunity Act. This federal law ensures that mortgage lenders do not discriminate against potential borrowers based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. FHA: Federal Housing Administration. The FHA is a division of the Department of Housing and Urban Development whose role is to insure residential mortgages and to set underwriting standards for lenders. An FHA loan is one that meets these standards. FICO: Fair Isaac Corporation. This company pioneered the practice of credit scoring, an important part of the mortgage approval process. Credit scores calculated using the company’s formula are called FICO scores. GFE: Good Faith Estimate. The government requires lenders to give applicants a Good Faith Estimate of all the costs associated with a mortgage, allowing borrowers to compare various offers. A lender has three days to produce a GFE after you submit an application, and it is a good idea to wait until you receive it before committing to a particular mortgage. GPM: Graduated payment mortgage. With this type of mortgage, the payments start low and increase for a specified period before leveling off. The low introductory payments do not cover all of the interest due, so a GPM usually results in negative amortization -- that is, the principal increases with each payment rather than being reduced. HELOC: Home equity line of credit. A HELOC is a revolving line of credit that is secured by your property. It is considered secondary to a first mortgage, and therefore typically carries a higher rate. HUD: Housing and Urban Development. This department of the federal government insures mortgages and sets standards for housing. Borrowers will encounter this acronym when they receive a HUD-1 statement, which itemizes all settlement costs due when a mortgage closes. LTV: Loan-to-value. A borrower’s LTV, expressed as a percentage, is the ratio of the mortgage amount to the appraised value of the property. A homeowner who has a $80,000 mortgage on a $200,000 property has an LTV of 40 percent. LIBOR: London Interbank Offered Rate. This figure is based on wholesale money markets in the United Kingdom. It is one of several indexes commonly used to set interest rates on adjustable rate mortgages. P&I: Principal and interest. If the monthly payment on a mortgage is expressed as P&I, it does not include taxes and insurance (see PITI, below). When comparing mortgages, it is important to take this into account, as other offers may build in these other components. PITI: Principal, interest, taxes and insurance. PITI mortgage payments include all four of these components (see P&I, above). PMI: Private mortgage insurance. When obtaining a mortgage with a down payment of less than 20 percent, lenders typically require borrowers to pay PMI to insure against the risk of default. Annual premiums are typically 0.5 percent of the loan amount. RESPA: Real Estate Settlement Procedures Act. This consumer-protection law requires lenders to disclose (upon request) all of the costs involved in settling a loan and prohibits kickbacks that may increase these costs. TIL: Truth in Lending. The federal Truth in Lending Act requires lenders to provide a statement that includes the information consumers need to properly compare mortgage offers. For example, the cost of lending must be expressed in dollars and as an annual percentage rate. VA: Department of Veterans Affairs. This federal government agency guarantees mortgages that assist eligible veterans in buying homes.